Keith Hudson's Musings

Nation-states will continue fighting

The recent proposed take-over of Allergen (in Ireland) by Pfizer (of America) in order to be head-quartered in Ireland and thus pay much lower corporate taxes for their world-wide operations than in America is causing consternation. That is, in advanced countries’ treasuries everywhere — except in Ireland! Very often companies place their headquarters in ‘nationette-states’ such as the Cayman Islands, Jersey or Luxembourg which charge very low, if any corporate taxes. They make their money by leasing sites — large numbers of them in each case — to companies.

Sir Simon Jenkins, well-known for being a supporter of several good causes, is quite upset by this. and thinks that it reduces the credibility of governments. So, as regards the Pfizer-Allergen affair, he’s written an article n the Guarrdian, “Another big corporation is fragrantly dodging tax. This must be outlawed”.

But Jenkins doesn’t appreciate that tax havens will never be extinguished because competitive taxation is the only method of continuing (permanently endemic) warfare between nation-states that’s now available to them — military methods now being mutually destructive. At the same time, competition between multinationals of every consumer product and production good is going to become fiercer, so, in addition to their own internal cost savings, they’ll continue to be looking for every taxation trick in the book.

So, in effect, each party will have two different battles on its hands. The net result will be a great slimming down of both governments (George Osborne leading the way?) and multinationals (with increasing automation).

(It’s interesting that pharmaceuticals are leading the way — that is, more desperate than most manufacturers so far. Their ‘pot-luck’ type remedies will soon face increasing competition from uniquely customised genetically-defined procedures. These will not require 20-year development latencies for governmental acceptance and are thus much more likely to be small businesses than large ones.)

Nation-states will continue fighting by offering low corporate taxation in order to attract them and their employees to their domains.